Frequently asked questions about RILAs

A registered index-linked annuity, or RILA, is a specific type of annuity that relies on stock market performance to determine returns. RILAs offer a unique combination of features including the opportunity to participate with a level of protection and growth potential that can help meet your overall financial goals. This is accomplished through a variety of index options. RILAs also offer a variety of lifetime payout options and death benefit options during the accumulation phase.

Allianz Life Insurance Company of North America (Allianz) introduced RILAs, also known as index variable annuities, in 2013. We launched this product category because some of our customers wanted growth potential but still needed a level of protection from market downturns. Additional insurers have also introduced their own versions of RILAs, but Allianz remains an industry leader in indexed products.

Annuities can help further diversify your portfolio and manage the balance between risk and reward. Bonds can be challenged in low interest rate environments, and this can worsen for existing bonds when interest rates rise. As a result, you may need to rely more on the stock market to get the returns you need. Unfortunately, you may not have time to rebuild if there’s a market downturn when you’re close to (or in) retirement. That’s why some people may turn to RILAs as part of their diversification strategy. RILAs give you an opportunity to participate in some of the market’s growth potential, with some protection from the downside risk. Keep in mind that diversification does not ensure a profit or protect against loss.

RILAs offer flexibility and unique benefits, but they do have contract fees and charges – and some exposure to market risk. On the pro side, RILAs generally don’t limit how much money you can place in the contract, and they offer tax-deferred growth potential. Plus, they offer a death benefit before you annuitize the contract, along with a variety of index options that can give you flexibility to help address your unique financial goals. But RILAs can involve some investment risk due to market downturns, including loss of principal. Investment returns and principal value will fluctuate with market conditions so that units, upon distribution, may be worth more or less than the original cost. Most RILAs also have a deferral period. This means that if you take money out sooner than the specified waiting period (usually between one and 10 years), you could incur a withdrawal charge. Also, withdrawals before the annuity owner turns 59½ will incur an additional 10% federal tax.

Your financial professional will be able to help you figure out which RILA may be a fit for you and your financial situation. We offer a variety of RILAs and fee structures to align with the type of products your financial professional chooses to offer.

Purchase payment refers to your initial and additional purchase payment(s), while principal includes any gains earned by your contract. You buy an Allianz® annuity with one or more purchase payments. The purchase payment represents the foundation on which the value of your annuity can grow. Any other money your annuity earns — for example, through credits or market gains – is added to your contract. We refer to this new combined amount as your principal.

Yes, they can. RILAs have some characteristics of both fixed index annuities (which are designed to help protect the money in your annuity from market volatility) and traditional variable annuities (which do have market risk). Allianz® RILAs offer several index strategies that can help you find a balance of risk and opportunity that may be appropriate for your financial goals. However, it’s important to remember that you could see a substantial loss during an index period if the index declines more than the level of protection your contract offers. And if you do see a substantial loss during an index period, you may not be able to participate fully in a subsequent market recovery due to the capped upside potential in subsequent index periods.

Index options are a combination of an index strategy (also called a crediting method), an index, the time period for measuring index performance, or the term, and a level of loss protection (such as a buffer or floor). RILAs allow you to place your contract’s value in various index options. The index options help determine how much potential credit your contract earns in a given term. Keep in mind, however, that an allocation to the index options is not a purchase of shares of any stock or index fund or a direct investment in an index – and that no single index option consistently delivers the most return under all market conditions.

Not if your RILA is nonqualified (held outside a retirement account). However, if you purchase a RILA within an Individual Retirement Account (IRA), you’ll have to take RMDs beginning at RMD age. You should also be aware that some annuity contracts require you to start distributions at a certain age (generally between 85 and 100) – so it’s important to ensure that the contract meets your long-term goals. A tax advisor can help you understand the tax implications of buying a RILA.